When set up effectively, financial reports are to business owners what buoys in a river are to sailors: they keep you centered and let you know if you veer off course.

When they’re well-summarized and aligned with how you think about your business, financial reports give you all kinds of juicy insights. To name a few:

  1. Whether or not you’re meeting your main targets
  2. How much cash is tied up that you can’t access
  3. What kind of overhead it takes to keep operations running
  4. What the profit margins are for your products and services

You can see in two or three pages how each piece of your business is performing — and how those pieces all work together — to influence profitability and cash flow.

When you think about it, your financial reports are like a front row seat to how your entire business operation is running at any given moment.

So how exactly do we make those reports so useful and worth the time to review?

There are three ways to have your team put this data together for you that will make it more meaningful:

  1. Compare your key numbers to other people and businesses in your industry
  2. Compare your performance to your budgeted/forecasted expectations
  3. Look at trends over time to see what’s working and what’s not

Structured properly, your reports will show these three items in a summary on the first one or two pages of your monthly financial package.

Yes – if you’re a grown-up business and don’t get a monthly financial package each month in time for you to make key decisions on moving forward, it’s time to get that in place!

Because if you don’t, it’s like you’re operating in the dark; you’re making decisions for your business that may feel right.

And true enough, your gut has brought you a long way in your business, but I also know that’s a little scary.

For example, you might have an employee who realizes if they buy a few hundred more items from one of your vendors, you’ll get a steep discount and save thousands of dollars. Great choice; and a really invested employee. We want more of them!

With the information they’re aware of, they’ve made a decision they truly believe is in the best interests of the company.

But, while this is still an employee to value, and in isolation it seemed like a great idea, what they don’t realize is that by purchasing those extra few hundred units, even with the discount, they’re putting your business into a cash flow crisis by tying up too much cash in inventory.

Financial reports give context to all of your business decisions, allow you to visualize how your company processes as a whole, and connect your operations to your strategy.

But what financial reports do you actually need?

What are the most important financial reports, what do they contain, and why are they important?


Report #1: Cash Flow Statement

Cash is king, so hands down, the most important financial report in your business is your cash flow statement.

Your cash flow statement is fairly simple: i’s the report that tells you what cash is coming into your bank account, what cash is going out, and how much cash you have left over.

Your cash flow statement is SO important because it gives you real-time data on how much money you’ve got to work with.

If you’re only looking at your Profit and Loss Statement (P&L), you may see that your business is profitable, but miss that your bank account is headed for the zero.

Cash makes your business world go round, and it’s important to know how much you’re spending, how much you’re collecting, and how much you have left over at all times.


Report #2: Profit and Loss Statement

Next up on the financial report must-haves is your profit and loss statement.

Your P&L is kind of like a movie (grab your popcorn!) of everything that’s happening in your business each month. Basically, it breaks down the profitability of your business and shows you if you’re making more than you’re spending each month.

Now, what’s great about your P&L statement is that not only does it give you an overall view of the profitability of your company, but it also allows you to look at comparisons and trends noted above.

The monthly information in a vacuum is just numbers – but compared to industry, your expectations, and trends, it is here that you see everything you need to know about every product, primarily what it costs and what kind of profit it delivers.

When you’re setting up your P&L, you want to make sure you set yourself up for success and have the ability to squeeze as much information out of the report as possible.

Figure out which views make sense with the way you think of your company: including things like product line, geography, customer, and customer type allow you to look at your profitability from multiple angles and make the most well-informed decisions.

There’s a lot of your business story in the P&L.

If you’re not seeing a picture emerge easily from your statements, one of two things is typically happening:

  1. Your data isn’t getting delivered to you properly, or
  2. Your data isn’t structured properly

Data delivery and structure is something we customize for each client’s monthly P&L to ensure all our clients are getting a clear picture of their business’s profitability from all angles.


Report #3: Balance Sheet

Your balance is often the often the least understood of the financial reports.

It’s important because it gives a snapshot of a few key areas of your business:

  1. Your assets, which are the things you own
  2. Your liabilities, which is the cash owed to vendors and lenders
  3. Your wealth, which is the investment or equity you’ve built in your business


Who Do You Get These Reports From? And How Do You Use Them?

So, now that we’ve covered which financial reports are critical to your success, let’s talk about how to use them in your business.

Ideally, your reports should be structured in a way that allows you to compare your business to both your competitors and your internal projections, and in a way that shows any trends month-over-month.

If you have trouble reading the reports, ask your bookkeeper or accounting team to restructure the data in a way that’s clearer and easier to understand.

If your monthly financial package is accessible and easy to read, it can have a huge positive impact on your ability to make effective business decisions.


Author, Virtual CFO, and Finance Coach
Your First CFO: The Accounting Cure for Small Business Owners” on AMAZON